Local Financial Return (LFR) 2020-2021: guidance

3. LFR 23: Reserves

LFR 23 collects information on all reserves (usable reserves, statutory adjustment accounts and unusable reserves) and must be completed by all local authorities. Please note, Common Good funds and trust or charitable funds are excluded. Common Good funds should be recorded in Column U of LFR 00.

The term reserve and fund are both used within legislation. In practice they are treated as synonymous and use of the word reserve should be treated as referring to both funds and reserves. Annex A provides background information on the usable reserves detailed in LFR 23.

The majority of LFR 23 is pre-populated based on other LFRs, particularly LFR A0, and will be automatically updated as the return is completed. This section focuses on the cells which are not pre-populated and will need completed.

3.1 Statutory Adjustments and Movement in Reserves (Rows 26 to 64)

Capital expenditure funded from Usable Reserves (Row 31): This row combines the following lines from prior years: Capital expenditure funded from revenue; Capital Grants and Contributions unapplied now applied to capital expenditure (Circular 3/2018); and Capital expenditure funded from Capital Fund / Capital Receipts. It also has been extended to allow recording of capital expenditure funded from other usable revenue reserves (Columns F to H).

Record here any capital expenditure funded from a Usable Reserve against the relevant column as positive values. Figures for General Fund, HRA and Harbour Accounts (Columns C to E) are pre-populated based on LFR A0, Row 106. Column J should reflect amounts of capital grants / contributions unapplied that have now been applied to capital expenditure only, in accordance with Finance Circular 3/2018.

Gain / loss on derecognition or disposal of assets (Row 32): Gains and losses are not proper charges to the General Fund / HRA / Harbour Account. The statutory adjustment requires a credit to Capital Fund / Capital Receipts equal to the disposal proceeds – this value should be recorded in Column I. Gains should be entered as a negative value; losses as a positive value.

Scottish Ministers have permitted some capital receipts to be used to fund specific revenue costs (LFR A0, Rows 128 to 132). These capital receipts must be transferred from Capital Grants and Receipts Unapplied and so are recorded in Column J.

If an asset is derecognised and was carried at a revalued amount, the Accounting Code requires that the balance on the Revaluation Reserve for that asset be transferred to the Capital Adjustment Account. Record this adjustment in Column Q.

Capital Grants and Contributions (Row 35): Record here the amount of capital grants / contributions recognised in LFR A0, Row 60 where the expenditure to be financed has not yet been incurred, in accordance with Finance Circular 3/2018. This figure should be entered as a negative value.

Transfer excess capital receipts (Row 62): Record here the value of excess capital receipts transferred between the Capital Fund / Capital Receipts and Capital Grants and Receipts Unapplied, in accordance with Finance Circular 1/2019 and Finance Circular 4/2019. The Capital Grants and Receipts Unapplied figure (Column J) will be automatically calculated as the equal and opposite of the Capital Fund / Capital Receipts figure entered (Column I).

3.2 Balances (Rows 66 to 76)

Balance at 1 April (Row 67): This is pre-populated with the closing balance as reported in the previous years' LFR 23 based on the local authority name selected on the Front Page tab.

Adjustments to balance at 1 April (Row 68): Record here any adjustments required to ensure the calculated balance at 31 March in Row 71 matches to that stated in the accounts exactly. Where an adjustment is significant, an explanation should be provided in the comments box at the bottom of LFR 23.

Adjustments for the General Fund, HRA and Harbour Account are automatically calculated based on the 'Balance at 1 April' figures entered in LFR A0 (Row 85).

Adjusted balance at 1 April (Row 69): This line calculates the balance brought forward following any adjustments required to the pre-populated balance as recorded in Row 68.

This line should equal the opening balance for the year as stated in the local authorities' audited, annual accounts. The only exception is where a rounding adjustment has been required to ensure the closing balance matches exactly.

Balance at 31 March (Row 71): This line must exactly equal the closing balance for the year as stated in the local authorities' audited, annual accounts – this will be checked as part of the accounts validation checks carried out at the point of submission. If there is a specific reason that this figures does not match the accounts, this should be detailed in the comments box at the bottom of LFR 23.

Balance at 31 March excluding IFRS 9 unrealised gains (Row 76): This line automatically calculates reserves balances at 31 March excluding IFRS 9 unrealised gains – the usable reserves balance that will be reported in SLGFS. IFRS 9 unrealised gains are excluded from the reported usable reserves balances as these gains will only materialise if the investment is sold and so cannot be considered to be available to fund services.

3.3 Earmarked Reserves (Rows 78 to 83)

A local authority cannot create earmarked reserves, however they can earmark the General Fund for specific purposes. Any earmarked amounts should be recorded in this section of LFR 23. These figures should be consistent with the amounts disclosed as earmarked in the local authorities' audited, annual accounts.

Council Tax Income to be used for Affordable Housing (Row 79): Local authorities have the discretion to reduce Council Tax discount on second homes and long-term empty properties. Additional income from reducing these discounts from 50% to a minimum of 10% must be used to support affordable housing – either by the local authority itself, paid to Registered Social Landlords (RSLs) or disbursed by local authorities to organisations or individuals.

Record here the amount of additional income from reducing Council Tax discounts on second homes / long-term empty properties that is earmarked for affordable housing at 31 March. The validation check in Cell M76 mirrors the validation check in Cell E38 of LFR 12 – see the LFR 12 guidance for information on this.

Housing Revenue Account's share of other reserves (Row 80): Where HRA reserves are held as part of other reserves, the amount attributable to the HRA should be recorded in this line.

Earmarked Reserves (Row 82): Any other amounts within the General Fund earmarked for a specific purpose, as identified in the local authorities' audited, annual accounts, should be recorded in this line.

3.4 Earmarked Elements in Statutory Adjustment Accounts (Rows 85 to 95)

This section requires balances held in Capital Grants and Receipts Unapplied, the Financial Instruments Adjustment Account and the Employee Adjustment Account to be analysed into component parts. This analysis is a requirement of the statutory guidance and must be completed. Validation checks have been included to flag returns where this has not been done.

Equal pay - capital receipts held (Row 90): The last year of application for the capital receipts flexibilities relating to equal pay was 2019-20. This means no new receipts can be held for this purpose, however the receipts held at 31 March 2020 can continue to be held until the equal pay claims are settled. Validation has been added to LFR 23, Cell R90 to ensure the amount of capital receipts held for equal pay in the Capital Grants and Receipts Unapplied Account does not exceed the amount recorded in the 2019-20 LFR.

Premiums on refinancing – capital receipts held (Row 93): This line has been added to reflect the change in recording of Financial Instruments - Use of Capital Receipts (Rows 52 & 53) to be recorded against Capital Grants & Receipts Unapplied, rather than Capital Fund / Capital Receipts as in prior years.

Covid-19 – capital receipts held (Row 94): This line has been added to reflect the statutory guidance set out in Finance Circular 2/2021 which allows capital receipts to be used to fund the financial impact of Covid-19.

The statutory guidance allows capital receipts from 2020-21 to be used in 2021-22 – where this occurs, the local authority must hold the capital receipts from 2020-21 in the Capital Grants & Receipts Unapplied Account. Row 94 captures the value of capital receipts held for the purpose of Covid-19, in line with the statutory guidance.